After one of the most anticipated budgets in the UK’s history we do now at least know what
we’re dealing with which is preferable to speculation. Labour’s proposed employment
reforms and tax rises could reshape the hiring landscape for small and medium-sized
enterprises (SMEs). Here’s what you need to know from an employer perspective and some
of the things to consider as you plan for the future.

Key Changes around Employment Rights

• Minimum Wage Increases: Labour proposes raising the minimum wage for over 21s
  to £12.21 an hour from April 2025. This adjustment may impact your wage structure,
  necessitating budget adjustments and strategic workforce planning.
• National Insurance Increase for Employers: employer contributions to NI will rise
  from 13.8% to 15%, and the threshold at which they have to pay it will drop from £9,100 to
  £5,000. But there’s some relief for employers in that employment allowance – which allows
  companies to reduce their NI liability – will increase from £5,000 to £10,500
• Employee Rights and Contracts: Enhanced protections on contracts, including limits
  on zero-hour contracts and increased day-one rights in areas such as unfair dismissal
  mean greater stability for employees but also affect your flexibility in staffing.
• Remote Work and Flexibility Requirements: New policies promoting employee
  flexibility, such as the right to request remote work, might affect your on-site roles
  and require adjustments in operational planning

Implications for SMEs

1. Increased Hiring Costs
   The 1.2% increase in employer NI contribution may increase hiring costs although
   some experts feel this will be offset by salary reductions (inadvertently impacting
   employees). Consider reviewing pay structures and internal efficiencies.

2. HR Policy Adjustments
   With stricter regulations on contract types and a longer window of up to 6 months to
   prepare unfair dismissal claims, SMEs may need to formalize employee policies and
   ensure compliance with labour laws to avoid legal risks.
3. Flexibility & Hybrid Working Adaptations
   Thinking ahead about implementing flexible work options that benefit employees
   without compromising productivity where possible is essential. This could be a
   competitive advantage for SMEs in attracting top talent if managed well without
   impacting productivity.

Actions for SMEs

• Review and Update Budgets: Factor in potential NI increases to your financial
  projections.
• Audit Employment Contracts: Ensure current contracts meet regulatory standards
  and safeguard your position.
• Prepare for Remote Work Requests: Consider how your business can accommodate
  flexible work while maintaining efficiency.
• Ensure you have a robust recruitment process: with the time allowed to appeal
  unfair dismissal rising from 3 to 6 months as well as the end of formal probation
  periods it’s essential SMEs follow a robust recruitment process that helps them
  select those with the skill and will to succeed within their business.
  If you’re not already doing it consider using assessment tools, scorecards, online
  background screening and wider ranging selection techniques which go far beyond
  121 interviews to mitigate risk and get a far stronger feel for the mutual fit that’s
  required between company and employee.

Conclusion
Labour’s reforms aim to enhance job quality and security for workers- time will tell how effective
these measures are in doing this. In the area of hiring, they bring challenges as well as opportunities
for SMEs. No organisation knowingly sets out to get recruitment decisions wrong but now, more
than ever, it’s critical SME businesses take steps to ensure they’re measuring what matters in their
recruitment process and have a consistent selection process in place to tip the odds in their favour.